Personal Bankruptcy

Consumer Bankruptcy

The attorneys of Weltman & Moskowitz, LLP have extensive experience with both consumer and business bankruptcy, debtor and creditor rights, and out-of-court workouts and debt restructuring.

Bankruptcy is not just for business debtors. The Bankruptcy Code is a federal law which provides consumer debtors with a federal right to relief from crushing medical, credit card and other personal debt. Yet bankruptcy is a serious remedy which, many still believe, should be undertaken only as a last resort after credit counseling and exploring all other reasonable economic alternatives.

Future credit may or may not suffer with the filing of a bankruptcy proceeding. Indeed, it is not unusual for creditors to approach debtors after the conclusion of a bankruptcy case to offer new credit. These offers of new credit may be based on the principle that debtors have resolved their financial difficulties, that they have no more debt, and that they cannot file again for at least eight years. Sometimes an offer for new credit requires a co-signer or must be secured against a savings account. In any case, the decision to file or not to file for bankruptcy relief needs to rest on a debtor's existing financial condition, not on his or her future credit expectations. In other words, a debtor should seek bankruptcy court protection in those situations where no other option makes sense.

Again, the chief purpose of a consumer bankruptcy is to provide an honest but unfortunate debtor with a fresh financial start. This fresh financial start is intended to allow individuals and sole proprietors who have become locked in debt to free themselves and engage in newly productive lives unshackled from their past financial problems.

Generally, there are two types of consumer bankruptcies. In the first, often referred to as straight bankruptcy or Chapter 7, the idea is that a debtor's nonexempt assets are to be converted to cash and distributed to creditors according to certain statutory rules.

Under most circumstances, however, there is little or no nonexempt property to deal with and the debtor will retain all of his or her property fully sheltered from creditor harassment in order to obtain the fresh financial start. At the end of the proceeding, the debtor receives a discharge, which relieves him or her from any responsibility to pay most typical unsecured personal debts and prohibits creditors from making further attempts to collect those debts.

There are exceptions. For example, criminal fines, penalties or restitutionary payments are special debts not included in a discharge in typical cases. Nor are most fraudulent charges, student loans, sales or withholding taxes, or spousal support and child support. Relief is sometimes available for federal and state income taxes more than three years old under certain circumstances. The rules can be complex and some people do not qualify for tax or special debt relief under Chapter 7.

The second type of consumer bankruptcy proceeding is frequently referred to as a Chapter 13 bankruptcy or wage-earner plan.
Here, the debtor proposes a plan to repay some or all of his or her outstanding debts when sufficient income exists to support such repayment. A Chapter 13 bankruptcy often is used by consumer debtors needing to protect non-exempt assets or to save their home from foreclosure sale. Chapter 13 bankruptcy filings may become more commonplace as a result of the recently enacted Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA").

Unlike a Chapter 7 bankruptcy, usually all or most of the debtor's nonexempt property is protected, although significant relief typically does not extend to the above-mentioned special debts. Co-signers may be protected by the bankruptcy court stay pending plan confirmation. After the plan is confirmed by the bankruptcy court, the debtor will continue making payments to the Chapter 13 trustee for a period of 36 to 60 months, depending upon their income under the BAPCPA means test. At the end of the Chapter 13 proceeding the debtor, with certain exceptions, is no longer personally liable on most unsecured debt still remaining unpaid. Before deciding whether to seek bankruptcy court protection, or under which bankruptcy chapter to proceed, it is wise to consult with an attorney experienced with both debtor/creditor matters and bankruptcy.

If you are an individual living in New York or New Jersey and have a problem concerning a debtor/creditor matter, or would like more information about consumer bankruptcy, feel free to contact the firm by calling 212.684.7800 or 201.794.7500, or via e-mail to one of the firm's attorneys. Inquiries are welcome and e-mail communications are promptly answered.

New York Office
Phone: 212.684.7800
New Jersey Office
Phone: 201.794.7500

For further information on this topic or to discuss your case, please contact Richard E. Weltman or Michael L. Moskowitz by telephone, fax or email.

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